Does this minor earthquake influence Real Estate business?

Probably most of you know that there was an earthquake during the weekend. Its epicenter was at Vrancea county (Focsani is the biggest city there) and it was also felt in Bucharest too (and other cities). Measured a bit over 5 points (at Richter scale), it woke up memories of the past, as 1977’s earthquake had also epicenter in the same area (of course it was much stronger and created tremendous damages). At this difficult period every bad news has bigger effect than it should normally have. But except the first stress of people, nothing else seems to have happened afterwards. (From what I discuss with people in Romania, as I am still in Greece, their approach is not very dramatic regarding the problem. If only this would have happened here… the media would scream for weeks, terrifying people as much as possible and “professors of universities” would have fought in public, trying to scare people even more in their wish to get attention and funds in their “research programmes”).
I was already called by 3 different friends of mine (all foreigners), who asked me the same question: What does this earthquake mean for Real Estate business. Replying to them, I felt like sharing this with you too, because it looks a bit more interesting than the earthquake itself. So, at a first glance, the effects I can see can be summed up as follows:

• Do not expect any serious transactions to occur in the upcoming 2 weeks. Usually after an incident like this, most people wait to see if there will be a sequence of more earthquakes, their attention is concentrated by the news and they need to see that everything is back to normal, before they proceed (not that now anyone is in a hurry anyway…)
• Even if the Romanians will not pay too much attention to this, the foreigners will focus much more. I already knew that since 2008 the majority of foreigners was avoiding to purchase apartments in old buildings (even in low prices), but now this trend will become even stronger. Commercial spaces and apartments in old blocks will be considered by the “strangers” (as foreigners are translated in Romanian language) as a risky investment.
• This means that the prices of old apartments will continue going down, especially now even more, as the foreigners who will dare to invest in them will be dramatically reduced and the Romanians willing to invest will be seriously less too.
• Not now, not tomorrow, but in the middle term, the new blocks with proven good construction quality will have a competitive advantage as an investment (at least in the eyes of the foreigners…).
• Be sure that there will be plenty of owners who will try to take advantage of the news and increase the rents. The tenants are saved for the moment, as the market’s situation does not allow to any owner to behave like in 2007 – 2008. But many will try, I can bet on this.
• On the other hand, many tenants renting apartments in very old buildings will search for an alternative solution. Not necessarily new, but “less old” structure. So, in the next 6 months, based on their financial ability too, several thousands of people will try to move from very old buildings to other ones, significantly better. (I don’t accept the argument that Romanians don’t care etc. Generally I disagree, but especially for this kind of issues, people here are very careful and try to protect themselves and their families as much as possible = a healthy approach).
• Many investors will be more careful when they just hear about a low price. They will be asking for the structure too. I remind you that in 2007 and at the beginning of 2008 the quality of construction was considered a not important factor because “anyway almost all constructions are bad nowadays, so the important is to buy something in a price which is not ridiculously expensive and then we will find a stupid to purchase it from us in a very high price”. This “investment strategy has died in 2008.
• There will be more attention in every technical due diligence for every transaction that includes a structure. People will be more attentive, banks will be asking more feedback, everyone will be checking thoroughly the way the building was built (and not only at the finishing, as most people do).
• Banks will be even more skeptical in financing a property in a very old building, especially an apartment. There were already several banks not granting loans for apartments older than 25 – 30 years, which is considered as the time-frame. Now I expect the rules to be tougher, as no one wants to find out that a property he financed is now part of a dangerous building. Accordingly the evaluators (at least the serious ones) will take into consideration the age of the property and any structural problems and the insurance companies will be asking higher costs, when someone will buy an insurance for an old apartment or property in general.
• As there are so many rumors about bad quality of many constructions, with several people in the near past being proud of tricking investors and end users, I expect the developers themselves (at least the serious ones with self respect) to crosscheck their work even more carefully. Some of them will also advertise their quality of construction, which advantage is expected to rise higher in the priorities of buyers.
• Last but not least. It is normal for the authorities to proceed in more controls and even to stop couple of bad constructions, just to send a message to the rest. (A low scale earthquake allows to the “people in charge” to take measures and action for something, before it is too late and without to be blamed by the public for not doing it earlier. As there are no damages and no one searches for someone to blame, they can start now and show to the public they are “determined to protect all people”). So expect also more questions and controls for new authorizations and projects, at least in the following months.

Probably most of you, especially the thousands of my Romanian readers, will be laughing with all these, considering them an exaggeration. Believe it or not, they are real. Business people are very attentive to any news and especially to an earthquake, which reminds to everyone that the whole area is not “peaceful”. This does not mean that they will vanish, being scared of the possibility of another earthquake in the future, but their first and strongest “defense” against this news will be to focus on properties which provide to them security.
Panic is the last thing we need and I am sure we will not have. But it is not a bad idea for you to ask and find out something more about the structure of the building you are living in. Especially when it is stamped with a “red bullet” since the old earthquake and the repairs “were not made, due to fights between the owners”.
Have a nice week!

(PS. I know that the administrators of many buildings will be cursing me, as people will be asking them for papers and details, but information is the safest road to knowledge and protection…)